New land bill puts people first, govt’s message is clear 'India won't be China'

Investors say the new land acquisition bill approved by Parliament this week has made things more difficult. Pro-farm civil-society advocates say it hasn’t gone far enough to protect farmer interests.

If both sides are unhappy, an inside joke goes, it must be a pretty good legislation that has struck the right balance.

The debate over land acquisition, however, is no laughing matter. In a country where half the people live directly off their land, which is often their only asset, dispossession poses huge political and social risks.

As numerous recent clashes over land have proved — in Nandigram and Singur in West Bengal, in Niyamgiri in Orissa, and over Posco in Karnataka (see graphic) — India needed a clear policy to define how it would cull rural and farm land for industrial development.

The government had been asleep at the wheel for too long on this, and large-scale displacement of tribal and local populations was contributing to the full-blown armed rebellion by Naxalites and creating civil unrest in less radicalised regions.

Now, the new policy — The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Bill, 2013 — makes its social objective clear.

It is to enable a “humane” process for acquiring land for “industrialisation” and “essential infrastructure”, one that causes the “least disturbance” to landowners and those whose livelihoods that land supports.

The bill replaces an archaic, British-era “eminent domain” law, the Land Acquisition Act of 1894, where consent was not required and, in some cases, neither was payment.

The new bill has three far-reaching features.

First, sufficient compensation, set at between two and four times the market rate.

Second, compulsory rehabilitation benefits.

And third, evaluation of social impact before land acquisition.

Still, the trade-off between agriculture and industry is never easy. India devotes nearly 48% of its land to farming, while China uses only 15%, but grows much more food. This means too many Indians are underemployed in unproductive farming when they could be working at better-paying jobs created by industry.

For this inevitable transition (from a low-productivity farm economy to an industrialised one), land transfer is unavoidable. But this transfer can no longer be effected by force, threat or deceit, as in Nandigram.

On the flip side, acquiring land for industry was never a cakewalk, and it will be more difficult now. The new law could therefore also raise the price of land, a cost that companies will most likely pass on to the consumer.

Users could, for instance, end up paying higher toll taxes on highways. Home buyers could also feel the pinch.

The new processes are also likely to make land acquisition a more long-drawn-out affair, affecting India’s standing with foreign investors (see graphic).

“In some cases, this could make certain projects unviable and hurt overall capital expenditure,” says Sonal Varma, an analyst with Japanese brokerage firm Nomura.

The bill does offer some good news for investors, since it leaves the job of cutting land deals to their best bet — ‘market economics’.

The government has rightly retained a role for itself, says Kaushik Basu, India’s former chief economic advisor and now the World Bank’s chief economist, speaking to HT via email.

“Voluntary exchange is at the heart of good economics,” adds Basu.

“But a first mistake in this is to assume that because private acquisition does not create a political hullabaloo, it is non-exploitative. In such deals, big businesses use both carrots and sticks, with the issue of consent often delegated to goons who make sure that the farmers ‘voluntarily’ accept the offer.”

Some economists have also faulted the formula for fixing the maximum price at four times the market value.

“This approach of the government setting an ad hoc multiple of market price is misguided — whether it is too high or too low is another question.

It is exactly like the government trying to fix the price of fuel,” says Maitreesh Ghatak, professor of economics at London School of Economics.

Boston University economist Dilip Mookherjee would agree. “Aligning required compensation with what it really ought to be should ideally involve an auction-like procedure,” he says.

The real issue, however, is how well the law can be implemented.

With its tough provisions, a typical land deal will require at least four years, from start to finish.

For a project riding on a Rs 30,000-crore industrial loan, for instance, this means a wasteful interest payment of Rs 10,000 crore to Rs 11,000 crore just during the period of acquiring the land. The good thing is, at least the rules of the game are clearer now.